The Goods and Services Tax (GST) Council has announced a festive bonanza for the Indian automobile industry. The authority has revised GST rates for small cars and bikes under 350cc engine capacity. These vehicles will now fall under the 18% slab, as the earlier 28% tax rate has been abolished. Bigger cars and SUVs, and motorcycles over 350cc will come under the new 40% GST slab for luxury goods, reduced from the earlier 50% bracket. The revised GST taxes will be effective from 22nd September, 2025.
Definition of Small Cars & Impact on Pricing
As per the new rules, petrol cars with engines of up to 1200cc and diesel cars up to 1500cc, with a length not exceeding 4,000mm will be classified as small cars. After the GST rejig, these vehicles will now attract 18% GST instead of the previous 28%. Cars that do not meet the ‘small car’ criteria will attract a 40% GST rate. Earlier, the bigger cars and SUVs were taxed at 28% along with a cess of up to 22%.
Bikes Under 350cc to Get Cheaper, Larger Bikes To Get Costlier
Motorcycles with engine capacities above 350cc will now fall under the 40% tax bracket, making them more expensive from 22nd September. Previously, these models were taxed at 28% plus an additional 3-5% cess. This means Royal Enfield 350cc bikes will receive a price cut, while the larger models such as the 450 and 650cc motorcycles will become expensive.
Commercial Vehicles, Three-Wheelers and Auto Components Benefit
Three-wheelers, ambulances, buses and trucks will now come under the 18% slab instead of the earlier 28% bracket. The government has pulled all auto components under one single GST slab of 18%. Earlier, auto parts attracted different rates, with some taxed at 12% or 18%, others at 28%. Aiming to encourage greener mobility solutions, the government has retained electric vehicles (EVs) under the 5% slab.
The GST tax revision is expected to give a boost to car and bike sales during this festive season, making smaller cars and entry-level motorcycles more attractive deals for buyers.
